Government ownership and stock liquidity: Evidence from China

This paper documents that state ownership is associated with higher stock liquidity, a finding consistent with lower investor risk perception of firms which benefit from state ownership, like preferential financing and regulation, and implicit government guarantees. The effect is found to be stronger when government ownership confers stronger benefits like firms with state controlling rather than non-controlling shareholders, and when the benefits of government ownership are important – for smaller firms, for financially constrained firms, and especially during the financial crisis period. These results suggest that investors perceive government ownership as value-enhancing, which increases their willingness to trade in such stocks.